Negotiable Instrument – is a written contract for
the payment of money which is intended as a
substitute for money, in such a manner as to
give a holder in due course the right to hold the
instrument free from defense available to prior
parties.
Requisites of Negotiability:
1. It must be in WRITING and signed by the
maker or drawer.
2. It must contain an UNCONDITIONAL
PROMISE or order to pay a sum certain
in money.
3. It must be PAYABLE on demand or at a
fixed or determinable future time.
4. It must be payable to ORDER or BEARER.
5. When the instrument is addressed to a
drawee, he must be NAMED therein
with reasonable certainty.
When negotiability ends:
1. It has been restrictively indorsed
2. It has been discharged by payment or
otherwise
Functions of a Negotiable Instrument:
1. It operates as a substitute of money.
2. It is a means of creating and transferring
credit.
3. It facilitates the sale of goods.
4. It increases the purchasing medium in
II. Promissory Note – unconditional promise
circulation.
Important Features of Negotiable Instrument:
1. Negotiability – that attribute whereby a
bill or note, or check may pass from
hand to hand similar to money.
2. Accumulation of secondary contract – a
series of juridical ties between the
parties thereto arise either by law or by
privity.
Kinds of Negotiable Instrument:
I. Bill of Exchange
- unconditional order in writing
addressed by one person to another,
signed by the person giving it,
requiring the person to whom it is
addressed to pay on demand or at a
fixed or determinable future time a
sum certain in money to order or to
bearer.
A. Draft – used synonymously with bill
Legal Tender – bills and coins
of exchange although it normally
Manager’s checks – good as cash
refers to a bill of exchange used in
Loan – secondary contract to the contract of
sale
documentary exchange like letters
of credit transactions.
B. Inland and Foreign Bill – both are
drawn and payable within the
Philippines.
Inland bill - a bill of exchange that is
or on its face purports to be both
drawn and payable within the
jurisdiction (as country or state)
where it is presented
Foreign bill - a bill of exchange that
is drawn in one jurisdiction (such as
a country or state) and payable
within another
C. Time Draft – draft payable at a fixed
date
D. Sight or Demand Draft – payable
upon presentment
E. Trade Acceptance – bill that is used
in contracts of sale where the seller
(as drawer) orders the buyer (as
drawee) to pay a sum certain to the
same seller (payee).
F. Banker’s Acceptance – a time draft
across the face of which the drawee
has written the word “accepted.”
G. Check – a bill of exchange drawn on
a bank, and is payable on demand.
made by one person to another, signed
by the maker, engaging to pay on
demand or at a fixed determinable future
time, a sum certain in money to order or
bearer. When the note is drawn to
maker’s own order, it is not complete
until indorsed by him.
A. Certificate of Deposit – a written
acknowledgment of a bank of its
receipt of a certain sum with a
promise to repay the same.
B. Bonds – a certificate of debt on
which the issuer promises to pay the
bondholder at a specified time
(usually for a long-term).
C. Debenture – a promissory note or
bond backed by the general credit
of a corporation and usually not
secured by a mortgage, or lien on a
property.
Other Instruments:
1. Cross checks – it is usually negotiable,
but can be negotiated only once.
2. Trade acceptance – negotiable
3. Money order – non-negotiable
4. Warehouse receipt – synonymous to bill
of lading; non-negotiable
5. Bill of lading – is based on products;
represents goods; non-negotiable
6. Pawn ticket – pawn articles; non-
negotiable
7. Treasury warranty – payable out of a
particular fund; non-negotiable
8. Trust receipt – evidence of ownership of
goods, not money; non-negotiable

Persons involved in negotiation:

1. Maker – person who makes promissory
note and promises to pay the amount
stated
2. Payee – also known as obligee; one who
receives payment
3. Drawer – person who draws the bill of
exchange and orders its payment. (e.g.
issuer of checks)
4. Drawee – person to whom the order to
pay is addressed in a bill of exchange
5. Acceptor – drawee who accepts the
order to pay made by the drawer
6. Holder – person who is in possession of
a bearer instrument or an indorsee of an
order instrument who is in possession
thereof
7. Referee (in case of need) – a person who
may be designated in the instrument as
the person who may be resorted to by
the parties, in case of dispute

Promissory note – “upon my order”, statement

of the maker.
To classify as a promissory note, it is a
requirement that there must be an indorsement
(is signed to give consent for further
negotiation) made by him.